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Yes, you can switch back from REPAYE to IBR or PAYE

There has been a lot of confusion from borrowers whether or not REPAYE, with its partial interest subsidy, is a good choice for people with high future income (e.g. residents). The main concern is what happens after training when salaries increase and the possibility of breaking past the monthly payment cap, which could make you lose money (in the context of trying to minimize payments in anticipation of PSLF). Note: If you’re just trying to pay off your loans in an efficient way, breaking past the cap should be mostly irrelevant–you should be trying to pay down your loans as fast as possible anyway.1I.e. it would mostly likely only matter if lifestyle has inflated to the point where the money you should be using to pay down your loans has been earmarked for other purposes, like car loans.

If you call your federal loan servicer but don’t ask the right questions, your servicer may lead you astray in how they answer questions about the terms of the REPAYE program. It’s misleading but technically true: if you are making so much money that you break past the REPAYE cap, you absolutely cannot switch back to PAYE or IBR.

That’s NOT because you aren’t allowed to switch out of REPAYE in general (you are), but because at that point you would no longer have a “partial financial hardship” and thus no longer qualify for those plans to begin with. Your servicer is able to provide information and advice, but don’t for a second think that they don’t have a vested interest (see what I did there?) in your payments. A simple rule of thumb is that if you owe more on your loans than you make in a year, you definitely still quality for your income-driven repayment plan.

What is actually used for payment calculations is not your gross income but your discretionary income: your adjusted gross income minus 150% of the federal poverty line for your family size (e.g. family size of 1, 2, and 3 is &17,655, $23,895, and $30,135 in 2015, respectively). The official rule is that if your calculated monthly PAYE/IBR payment (whichever you qualify for) using 10/15% of your discretionary income is less than the standard 10-year repayment, then you still qualify.

So there is a simple solution for forward-thinking borrowers who want to take advantage of the REPAYE benefits but don’t want to tie themselves to higher future payments: Switch back before you make money.

You can switch from REPAYE to PAYE as long as you still qualify for PAYE. Or you can switch back to IBR instead if you had older loans and didn’t qualify for PAYE to begin with.2IBR payments are higher than PAYE payments (15% vs 10% of AGI), so PAYE is preferable in the context of minimizing payments for PSLF. Do this at the end of your training and the problem is solved. (Technically, many people could do it even once out in practice; it all depends on how much you borrowed versus how much you/your family makes per year. You can use the calculator to see what household income you’ll need to break past the threshold.)

Also note that since most people generally use tax-returns and not pay stubs to verify income, there is generally a delay between when your income rises and when your taxes reflect that increase. This isn’t the way servicers would like it, but it’s the reality on the ground. You could be an attending as of July 2016, but when you resubmit income verification in the fall of 2016 for REPAYE, you’ll be submitting your 2015 taxes, which is a combination of your last two PGY years of training.

Note that your unpaid interest will capitalize when you switch out of REPAYE, but if it’s all going to be forgiven in PSLF, this is essentially irrelevant. You’ll also sometimes have your accounts placed in an administrative forbearance for a month during the switch, which can delay your PSLF a bit as well.

This plan-switch information comes from this document and FAQ, and I’ve confirmed this interpretation with Nelnet (one of the federal loan servicers). If you talk to your servicer and they say otherwise, ask them to explain exactly why and we’ll get to the bottom of it. Because they should be wrong.

30 Comments

I have $410,000 with capitalized interest at 6.8%. Recently switched from IBR to REPAYE after finding out the benefit of the REPAYE over IBR. My expected income for upcoming year is a shy over $200,000. My spouse’s income is around $250-300,000 with no debt. Is it better to stay on REPAYE or switch to PAYE and file as a single filer?

I’m assuming you mean better from the perspective of minimizing payments for PSLF. Using the federal estimator,

Estimated monthly REPAYE with a household income of $450k is around $3500. Estimated PAYE with single filer making $200k is around $1400.

So PAYE filing separately is better. In general, when your spouse has high income and no loans, REPAYE stops being a good deal. Of course, if you actually plan on paying off your loans, then lower payments just means more money wasted on interest.

Re: “You could be an attending as of July 2016, but when you resubmit income verification in the fall of 2016 for REPAYE, you’ll be submitting your 2015 taxes, which is a combination of your last two PGY years of training.”

–With PSLF in mind– So at the time you are resubmitting income verification, should you switch from REPAYE to IBR at that time or before income verification? Basically, my question is when would be the most appropriate time to switch?

Generally you would want to switch at the last time your taxes will still give your a partial financial hardship. So if the taxes from your first half year of attending salary are high enough that you don’t have a PFH, then you’d want to switch when your taxes are from training only.

So in the example where you graduate in 2016 and are submitting certifications in the fall: – Fall 2016 certification, 2015 taxes from training only – Fall 2017 certification, 2016 taxes from last year of training and first half year as attending – Fall 2018 certification, 2017 taxes from attending only

When to switch depends on which tax year will be the last one that you’d still qualify for IBR during. Many people never have to switch.

The alternative, if one is concerned about being asked for pay stubs or having the Department of Education audit your payment history would be to switch early before starting your attending job. This way when the form asks if your income has changed significantly since you filed your taxes, you can honestly say no. Again, this would only be necessary in the first place if you make enough to not get a PFH.

“Note that your unpaid interest will capitalize when you switch out of REPAYE”

I was recently (I believe incorrectly) switched from PAYE to REPAYE after recertifying, but interest wasn’t capitalized. Are you sure it would capitalize if I switched back? (Which I’m attempting to do) I was under the impression capitalization only happens when quitting IBR.

Your original belief was what I used to think as well, but the language is pretty clear in that FAQ and elsewhere. The servicers aren’t that good at their jobs, it may be something as simple as that. Or it may be related to how this happened to your incorrectly. Feel free to call them and ask of course, no harm in that.

If you switch from REPAYE to PAYE, do your payments made under REPAYE carry over to PAYE to count towards the 120 payments needed before PSLF? For example, if you were in residency for three years, and thus made 36 qualifying payments towards PSLF, and switched to PAYE, would you need to make 120 payments with PAYE? Or would you only have 84 more payments to be made at that point?

Lets assume I’m switching from REPAYE to PAYE after ~5 years. Is the total amount of all those interest subsidies I have been taking advantage of going to be tacked back onto my loan balance or does the non-subsidized interest rates just start accruing from the point that I switch?

No. The subsidies are not tacked back on, they are basically forgiven/waived interest on that monthly basis; that’s yours forever once applied. Whatever outstanding/unpaid interest you have accrued will capitalize though.

Hello everyone, please see if you can help me figure this one out: I need to know if, and so when, I should switch from REPAYE to IBR to ensure I stay on a PSLF qualifying plan once my income increases. The people at Fedloans were worthless and misleading. For reference, I have 300k in loans, on REPAYE for 2 years, ineligible for PAYE, interest of 4.5%, and am in my last year of fellowship. I just accepted a job starting in July for 300k/year to start. I will qualify for PSLF in 2026. The main crux of the question is: if I decide to switch to IBR (to cap my monthly payment), do I need to recertify income at the time I do the switch, or will the current income be used? This has significant implications for the total I could save with PSLF, and also about whether I miss the window to switch from REPAYE to IBR. My monthly payment on REPAYE is behind my income by 1.5 years or so, so right now my payment is based on my R4-R5 year ($316/month). In November 2018 I will recertify with income based on my R5-fellowship year (payment will go to $366), and in November of 2019 will recertify with income from half fellowship/half attending income (payment jumps to $1440). I plan to remain in REPAYE through that year (where my income is listed as half fellowship/half attending), but then have to decide if I should switch to IBR. From the math (300k in loans at 4.5%), it looks like the REPAYE $/month would equal the IBR (or 10 year standard) payment when my income hits $400k (monthly payment of about $3100), so it makes sense to stay on REPAYE if my income will be less than this (to maximize dollars forgiven with PSLF). If I expect my income to be over $400k, or I get married, the REPAYE payments would be higher than IBR. Using the calculators online, it looks like once my income hits $265k, I no longer qualify as having a hardship and from what I hear can no longer switch from REPAYE to IBR. So if I’m going to switch, I need to do it during the year where my taxes reflect the half year of fellowship (AGI for that year will probably be $190k). If I decide to switch, and I go along and pay the ~$1400/month on REPAYE at the AGI of 190k, will I need to recertify income again when I switch? The reason I ask is because after 3 months or so of paying at that rate, I will have filed taxes again, and that tax return will reflect my full year as an attending, and from what I understand I would then be stuck in REPAYE if I want PSLF. I know it may be a gamble to switch since at 300k income I would be paying about $9000/year more in payments on IBR than REPAYE, but I expect to be up to 400 in a few years and I’ll likely get married in there somewhere so REPAYE may burn me in the long run.

They can always ask you for paystubs to verify income. Personally, I would consider making the switch at or near your annual certification time using the last set of taxes that make that a possibility. I wouldn’t try to time it down to the month.

Keep in mind re: the marriage thing that it will depend on how much said future spouse makes if it will make filing taxes separately worthwhile in IBR or not even if you do the switch. If your spouse is in a similar loan situation scenario, then you also wouldn’t need to MFS.

I would consider if it’s worth it at all. If your income is going to be $500k, that’s one thing, but if you earned $420k for a year or two, then the extra 10% of $20k is going to be a rounding error for you at that level of income. If you’re getting an academic job, you’ll probably have access to a 403b and 457b and maybe even a mandatory contribution to a pension or something analogous, so you could reduce your income by $37k+ right there as well. Spouses have access to retirement accounts as well. Are you going to be making more than $440k? You see what I’m getting at here.

Yes this makes sense, I am leaning toward staying in REPAYE. The extra $ up front it will cost me (about $9000/year) for IBR will be a much higher percentage of my income than the extra it may cost me to stay in REPAYE and have my income jump substantially. That savings could be invested. I’d have to get to over 500k AGI for it to cost $10k more a year in REPAYE, which may not happen.

Hi Ben, Similar question to the one above but with different figures and with no PSLF at this point. I’m a recent med school grad with loans prior to 2007 so not eligible for PAYE. Currently enrolled in REPAYE. Loans around $300,000. Planning on working part-time and making around $50,000/yr. Getting married to someone with NO student loan debt and a salary around $70,000/yr. I know there are more factors to consider, but at these income levels does it makes sense to stay in REPAYE or switch to IBR once we get married? Thanks so much!!

That depends on if you’re trying to minimize payments or not. You would pay less in IBR filing separately per month, yes, and if you’re attempting 25-year forgiveness that would result in the most forgiven. But still probably spending around $400k+ even in that scenario.

It also may be important for you to consider exactly how “partial financial hardship” is determined at the time you apply to switch into PAYE.

From Section § 685.209 of the Code of Federation Regulations, the maximum payment that you can make under PAYE before no longer being in partial financial hardship is “…calculated under a standard repayment plan based on a 10- year repayment period, using the greater of the amount due at the time the borrower initially entered repayment or at the time the borrower elects the Pay As You Earn repayment plan.”

Practically, what this means is that if your loans have in fact been growing during residency because you’ve been paying very little each month, at the time you apply to switch into PAYE, the threshold standard 10-year payment may actually be higher than it was at the beginning of the repayment period (i.e. the beginning of residency).

Hi Ben, Just wanted to clarify- I am graduating medical school and starting residency in July. I am not a new borrower, since I had some leftover undergrad loans taken out before 2007. I’m weighing my options for the best repayment plan. I, like most people, like the lower REPAYE payments, but I’m just uncomfortable with the lack of a cap on the payments (I always pay more than the minimum when I can, but I like having a cap in case of an unforeseen or untoward life event of some kind). If I understand your post correctly, I could potentially do REPAYE for most of my training (not sure if I’m going fellowship yet) and then switch to IBR, say, last year of training? (I know I’d see an increase in my payments for that year, but then I get my safety cap back before I become an attending). Thanks so much!

Hello Ben! Your posts are very informative even for those not in the medical field. May I pick your brain please?

I am trying to help my girl friend with her massive student loan debt.

In a nutshell she has 1) 8 loans (tokens) that qualify for REPAYE/PAYE with great lakes (all with different rates and amounts etc) 2) 1 Loan with AES FFELP only qualifies for IBR

So far I have concluded that REPAYE or PAYE will be better for her than IBR (if you assume that she will be looking to get loan forgiveness in 20 yrs and then count on insolvency?) and wanted to know what do you think about consolidating the FFELP loan with only 1 of the loans serviced by great lakes (one that is small at only $1500 and has just started accruing interest at 3.2%) and choosing great lakes as the servicer of this consolidated 2 loans? They will have all loans in the end.

The FFELP loan is a subsidized stafford that has been in deferment for many years at $7k 6.8%.

This way she doesn’t consolidate ALL the loans (avoiding interest capitalization on those that have accrued big interest, although I am not sure if this matters when looking for 20yrs forgiveness), just 2 and then all can be put in REPAY or PAYE.

Please let me know what you think of this or if you need more details. THanks

P.S: You mention that those looking at PSLF should not be concerned about interest capitalization if they switch down the road from REPAYE to PAYE just in time to qualify, but what about if you are looking at the 20 yrs forgiveness? Does it matter if there is capitalization then? If she marries someone with no loans and high income in the future, wouldn’t it be better that she gets the PAYE plan from the start instead of REPAYE?

This is all a bit daunting to be honest.

Sorry for the long write up, and thank you in advance for any insight you can provide.

Interest capitalization definitely matters for long-term loan forgiveness. That extra principal will accrue more interest over the 20-year period than the original smaller loan amount. Since the forgiveness is taxable, you’re still accountable for a direct fraction of the total forgiven amount. You don’t want it to be larger than necessary.

I would personally not plan to account for insolvency 20 years in the future, but if one were truly insolvent and the feds agreed, then the capitalized amount would not matter.

The forgiveness timelines between IBR, PAYE, and REPAYE are different (25 years, 20 years, and 20/25 undergraduate vs graduate, respectively).

If one is planning on going for PSLF or IDR loan forgiveness, then probably don’t need to keep multiple loans instead of one consolidation, unless she already has payments made counting toward forgiveness with the other eligible loans, in which case sure.

Whether or not the PAYE loophole of Married Filed Separately makes sense for those with high-earning low-debt spouses is not a trivial question and depends entirely on the number and amounts involved. It is possible to lose money in tax inefficiency even if you have lower payments.

This is very complex and even harder to predict the future in order to make the right choice.

Without this being financial advise, would you be more inclined to suggest that Repaye could be a better choice since more interest will be forgiven vs PAYE being that she is single at the moment and making little money? Also, I need to figure out whether it is better for her to consolidate the FFELP 7k at 6.8% loan with the little $1500 loan at 3.2% vs a bigger 10k at a similar interest rate of 6.5%. I figure it would be better to have a consolidated 9.5k loan at around 5+-% weighted average vs a 17k loan at 6.7+-% right? Thank you for your time and insight.

I read on it that you suggest consolidating the loans right away in order to take advantage of the REPAYE interest subsidy because consolidation would capitalize interest.

In this case great lakes has already capitalized the interest since she has now her first scheduled payment under the 10yr plan come due at the end of the month (which we will postpone while the FFELP loan is being consolidated and transferred to great lakes for them to calculate the REPAYE plan and start from there)

So I was wondering if consolidating ALL 9 of her loans in one go will be a mistake vs consolidating the FFELP with just one of the loans and leaving the rest alone. I understand that the new rate would be the weighed average and additionally they will round it up to the nearest 1/8th%, so it looks like it is not a good idea to add even 1/8th with consolidate them all, correct?

If the capitalization has already happened, and all those loans with great lakes qualify for the REPAYE already, is there any benefit to consolidating ALL loans when I help her fill out the consolidation request on the federal aid website other than getting it all done in one step and having just one big loan vs 9 loan/tokens with a weighted average + 1/8th%?

Thanks for all your insight and time. This probably is the last thing I need to figure out.

You can do the calculation (there are consolidation calculators out there if you don’t want to do the math) and see if the rate really goes up. It goes up to the nearest 1/8th—not just automatically by 1/8th—so in many cases that is not meaningfully different.

All things being equal I’d rather have 1 loan. Especially when thinking about loan forgiveness 20 years and 240 payments later, the fewer number of data points the fewer chances for a mistake. That’s a personal opinion, but the services aren’t known for their skill and acumen.